What happened

Shares of PagerDuty (NYSE:PD) were plunging today after the software-as-a-service (SaaS) stock missed the mark in its second-quarter earnings report and offered a disappointing forecast for the current quarter.

As a result, the stock was down 27.2% as of 10:04 a.m. EDT.

The Pagerduty logo on a green background

Image source: PagerDuty.

So what

Revenue at PagerDuty, which makes software that monitors IT systems and notifies companies of outages, rose 25.7% to $50.7 million, short of expectations at $51.6 million. Customers with annual recurring revenue above $100,000 increased 35% to 369, and the company finished the quarter with 13,346 total customers, up about 10% from a year ago.

Gross margin improved from 84.9% to 86.9%, a favorable sign that the company keeps nearly all of the revenue after the direct costs to run the business, however, it continued to spend heavily on sales and marketing, which took up 54% of revenue, or $27.5 million.

On an adjusted basis, PagerDuty posted a loss of $0.04 per share, better than a loss of $0.07 a year ago and estimates of $0.07 loss for the quarter.

"PagerDuty is well-positioned to benefit from the long-term tailwinds of digital acceleration, cloud migration, and DevOps," CEO Jennifer Tejada said in a statement. "Despite the extraordinary market dynamics, our customers remain loyal and we remain confident in our strategy and optimistic about our growth."

Now what

What really seemed to disappoint investors was the company's guidance. PagerDuty projected revenue growth to slow in the third quarter, calling for a top-line increase of 22% to 24% to $52 million to $53 million, below estimates at $53.7 million, though management offered little explanation for the guidance.

The stock had gained early in the week following a blockbuster report from Zoom Video Communications, which lifted a number of cloud stocks, so today's sell-off may be steeper than it would have been without that pop, but it's not surprising to see the stock fall as revenue growth is slowing earlier than expected.

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